The Issue: CFIUS

The Committee on Foreign Investment in the United States was created in 1975 by President Gerald Ford as foreign investment into the U.S. was becoming more and more prevalent. CFIUS was created as an interagency committee, with its members serving the president and charged with overseeing national security implications of foreign investments into the U.S. economy. The committee is made up of nine members representing different cabinet level departments including Defense, State, Commerce, Homeland Security and Labor. The committee is chaired by the Secretary of the Treasury.

The organization has a penchant for being relatively secret. Foreign entities looking to make acquisitions of U.S. companies are asked to voluntarily notify CFIUS of a potential acquisition. In most case notifications remain confidential and often Congress is left out of the deliberations. Congress has complained that their ability to perform oversight functions of the agency is curtailed by CFIUS’s lack of transparency in its operations.

CFIUS operated in relative obscurity until recently. In 2006, DP Port World, a state-run company owned by the Middle Eastern nation of Dubai, attempted to acquire a British firm that managed terminal operations at six U.S. ports. The acquisition did not even warrant a formal, 45-day investigation by CFIUS before the deal was approved. Apparently, CFIUS concluded that allowing a foreign entity to obtain control over six major ports - and the security protecting them - was of no harm to national security. The deal was scuttled only after Congressional leaders on both sides of the aisle raised concerns over the deal. Eventually, DP World sold the control of the ports to an American-owned company after enduring weeks of negative publicity.

Normally, CFIUS does not receive any scrutiny However, foreign acquisitions of key infrastructure has become a bigger issue in the wake of the terrorist attacks of 9/11. For years, CFIUS provided what could be described as insufficient oversight, to put it mildly.

Between its creation in 1975 and 1980 the committee met just 10 times. Because of a lack of transparency, it is impossible to quantify the exact number of reviews the organization has taken on. However, one source claims that from 1988 to 2005 the organization has received roughly 1,500 notifications of foreign acquisitions. Of the 1,500, only 25 warranted a full investigation. Of those 25, 13 acquisition offers were withdrawn after the companies learned they would be forced to go through a formal 45-day investigation. Of the 12 notifications that made it through to the president for a final 15-day review, only one of those acquisitions was eventually deemed to pose a national security threat.

This everything-must-go approach to foreign acquisitions has certainly been damning to the U.S. economy, especially as the number of foreign acquisitions continues to climb. In 1996, foreign acquisitions made up just nine percent of mergers and acquisitions of U.S. businesses. In 2006, that number had jumped to 14 percent. We are rapidly allowing entire U.S. industries to be bought off by foreign entities, thus diverting U.S. technology, jobs, ownership, tax revenues and possibly sensitive national security secrets abroad.

As the state-owned French company Electricite de France SA is preparing to acquire half of the nuclear operations of Constellation Energy Group, a privately owned U.S. company, the Committee on Foreign Investment in the United States may be the only entity that can stop the deal from going through. However, one should not hold their breath waiting for CIFUS to thwart the deal, as the agency has been little more than a rubber stamp for foreign acquisitions since 1988.

"The committee almost never met, and when it deliberated it was usually at a fairly low bureaucratic level, I think it's a bit of a joke."
- Richard Perle, worked for the Reagan, Clinton and both Bush administrations

"CFIUS has largely been a toothless watchdog.”
- Sen. Evan Bayh (D-Ind.), testified in 2008 before a bipartisan committee of analysts, researchers, and academics set up to examine U.S.-China economic and national security issues.

The Committee on Foreign Investment in the United States needs to better scrutinize purchases of U.S. assets in the future, especially those by sovereign wealth funds. It should also demand more accountability and transparency in any sovereign wealth fund looking to invest in the U.S. to ensure that their motives are in no way nefarious economically, politically or socially. The members of this committee must be held accountable for their actions and be replaced if they cannot or will not protect the United States' economic and political interests.

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